Sunday, August 05, 2007

Inventory levels remained fairly unchanged week over week, with a net drop of 103 listings after the monthly expirations. As AB pointed out, with ~1500 sales in July, we now have 12 months of resale inventory on the market:

I would like to highlight some trends on the price-level inventory front. In all the counties, save El Dorado, there has been a surge of $200K-$300K priced houses put up for sale:

This surge is directly responsible for the overall asking price declines we have been seeing here, and inventory at that level continues to grow even as the higher-priced inventory levels decline:

The re-pricing of the Sacramento housing market continues before our very eyes.

25 comments
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I've been coming to this site for some time now, and I have a question for sippin. It seems like all asset classes go through periodic boom and bust cycles. Yet you seem to want to pick a part the data and hold up one small piece of information as the reason our real estate market is not overpriced. Do you have a business interest of investment interest in the Sacramento real estate market that you're trying to prop up. It reminds me of stock brokers in the year 2000 talking about Dow 40,000. It seems to me that real estate is no different than any other asset, and sooner or later we will have a reversion to the mean. Whether that be after a boom or after a bust. I would encourage you to review Jeremy Grantham's study of asset bubbles and how they play out overtime. Maybe, you actually believe what you write, and if that's so I would review the above mentioned study and Robert Shiller's study of real estate as an asset class both dometically and globally.

I think a lot of the REO makes its way pretty quickly onto the MLS, listed with real estate agents. Max at SacRealStats suggested, as you do here, that there is a lot of REO property not actively on the market. I follow a lot of REO stuff from foreclosure rolls, and 80% of the REO properties I see can be found on the MetroMLS. Even Hudsen's auction had all the properties on MLS, before the sale.

What is it that leads you to believe in a "shadow market" of REOs no actively being sold? Or do you just see so much of it going thru the process leading to the REO status, during which it is not listed on MLS? I do see such cases often, but could 500 homes in NOD, leading to NOT, and finally to REOs listed on MLS make that big a difference? Or is it more homes than 500?

I do think this market is headed firmly south for many reasons:

1) the foreclosure listings are not going away after September....in fact they will grow, contrary to normal selling cycles.

2) lending is tightening up substantially. The goofy zero-down foolish buyer is gone. People with real downpayments are not fools.

There will be a few dead cat bounces along the way, and sippn can call the bottom 10 times between now and 2010, but it won't make any difference. Renting is much smarter than buying today (it costs less per month and there is no depreciating asset). Until that changes (and rental rates are dropping, by the way), housing is in a pickle.

2nd - I just pointed out a huge increase in inventory - opposite of what you are indicating I do. It could be higher price ranges are improving - or - sellers are dropping their prices enough to bloat the $200-300k range ... I left it up to somebody else to show the error in my ways.

3rd - these sites have very little impact on the overall market, but it entertains me sometimes when I get tired of talking to teenagers.

4th - Shiller - why did he pick 1890 as a start? Sure made his chart look good. How about 1925-1945? - then you would have seen a doubling in prices in the 40's.

Have I called a bottom? I will look up Grantham. RE is different than other assets, btu that will take longer to write about and I need to work (shush!).

"What is it that leads you to believe in a 'shadow market' of REOs no actively being sold?"

It's just a generalized hunch based on all the things going on right now. Sales down, forclosures up and inventory not quite where you would think it would be based solely on those first two things. So where's the missing inventory? This basic line of thinking is where I'm coming from...

"1) the foreclosure listings are not going away after September"

No doubt. If I recall from the Credit Suisse chart, mortgage resets will be peaking in a few months. If any of you caught the article from Mish over the weekend "Will Rate Cuts Save the Economy?", he points out that mortgage rates have become disconnected from rates set by the Fed, and that the rates for most mortgage categories have jumped 1.9% in just the last two weeks!!! Astounding. As those resets continue to come, all hell will break loose.

There is no logic in the banks holding off listing REO property. (May the first bank to the market win.)

1.) There is a huge seemingly never ending supply of REOs for the next several years.

2.) Banks are on the hook for all this money unless the homes sell. (There is no money to be made by having a house sit... what are banks in the business to do?)

3.) Every other bank is having the same problem.

4.) Lending is tightening creating an even smaller pool of potential buyers.

If that much REO inventory is out there, and there is no way that the banks can hold out forever, you either try and get top dollar now or take a huge risk when your hand is forced later because you have to move the property or else go under yourself. I think most banks would take what they can get now, rather than wait. Look at the lending market, it's not getting any better and we're just casual observers. Just my two cents!

"I refer to the small area I live in, where there are several houses that are marked for sale, but are not listed in the MLS. Plus there is a house that looks abandoned, for sale at a very cheap price."

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Property not on the MLS is For Sale By Owner, not "shadow property". If there is a For Sale sign out front, it's on the market. Maybe not the MLS service but on the market just the same.

Now if there is no "For Sale" sign and no MLS listing, I would consider that "shadow property". (I don't think there is that much "shadow property" out there. It doesn't make any sense to hide property you want to sell. At least get it out there, you might find a "greater fool"!)

Inventories down a bit and median price down a bit too. I wonder if we have hit the peak listings for this 15 year cycle? That suggests we have only 3 years to reach peak foreclosures and then anther year or two of price declines to hit bottom. Finally, some good new for Sippn! Price appreciation is only 4 to 5 years away. Just kidding ya sip'.

Bubble sitter - thanks and at least you don't show me up in the spelln' dept.

Yea I think the listing inventory is topped out this year due to seller exhaustion. Country Wide said something interesting - that 2/3 of the loans that were scheduled to reset in the next year have already been refinanced or otherwise paid off.